CSX: Will It Turn Around?

The sustained low commodity prices have impacted coal volumes negatively, and this has been a negative for CSX (CSX). As per the report by Energy Information Administration (EIA), The Henry Hub natural gas spot price averaged $2.09/MMBtu in November, a decrease of 25 cents/MMBtu from the October price. This is due to record inventory levels, production growth and a relatively mild winter that led the natural gas price remain at low levels.

The natural gas price will remain low in 2016 that may further impact its coal volume.

This report anticipates the monthly average Henry Hub spot prices to remain lower than $3/MMBtu through August 2016, and to average $2.88/MMBtu in 2016.

However, despite these tough market conditions CSX managed to report growth in its earnings for the year. The company reported earnings of $2.00 per share in 2015, an increase of 4% as compared to earnings of $1.92 per share in 2014. Moreover, this growth in its earnings was despite the fact that its revenue declined by more than 21% as compared to 2014, as shown in the snapshot below.

This growth in its bottom line can be attributed to its continued focus on costs and efficiency measurements.CSX reduced its costs in almost every department of its operation significantly that helped the company to obtain savings of approximately $324 million in the financial year 2015. For instance, CSX reported combined efficiency savings of nearly $65 million.

Conclusion

CSX remains a good bet in the short as well as in the long-run. It has learnt to grow its bottom lines despite significant headwinds in the coal market. Moreover, it is continuously investing in the network that should drive its growth in the future. It has strong balance sheet that carries total cash of $1.8 billion and has total debt of $13.32 billion. It has operating cash flow of $7.65 billion and free cash flow of $2.22 billion that should support its growth in the future.